Derwood wrote:If you're getting a multi-thousand dollar refund, you've screwed up along the way

No, this is a myth. If you get a multi-thousand dollar refund after a year where you had to use balance transfers to pay bills or something, maybe. But not optimizing your withholding to the penny is not a flaw.

Giving the government a multi-thousand dollar interest free loan is certainly a mistake.

Again, unless you're an extreme outlier, the difference in getting that money monthly v. an annual refund is negligible. Certainly so if you're less likely to use that money for responsible/interest-bearing purposes if it were just part of a larger monthly paycheck. Optimizing withholding to avoid giving the government an 'interest-free loan' has logic but is silly in practice, similar to 'if you don't buy a $3 latte and invest it you'll be a zillionaire when you retire'. It misses the forest for the behavioral trees.

Transmogrified Tiger wrote:Again, unless you're an extreme outlier, the difference in getting that money monthly v. an annual refund is negligible. Certainly so if you're less likely to use that money for responsible/interest-bearing purposes if it were just part of a larger monthly paycheck. Optimizing withholding to avoid giving the government an 'interest-free loan' has logic but is silly in practice, similar to 'if you don't buy a $3 latte and invest it you'll be a zillionaire when you retire'. It misses the forest for the behavioral trees.

One $3 latte a week? Ok that's that like $150 a year. Over 40 years, that's $6000 if you just put it in a savings account.

One $3 latte a day? That's $1100 per year, $44000 over 40 years, not to mention the added weight from all those extra calories.

Transmogrified Tiger wrote:Again, unless you're an extreme outlier, the difference in getting that money monthly v. an annual refund is negligible. Certainly so if you're less likely to use that money for responsible/interest-bearing purposes if it were just part of a larger monthly paycheck. Optimizing withholding to avoid giving the government an 'interest-free loan' has logic but is silly in practice, similar to 'if you don't buy a $3 latte and invest it you'll be a zillionaire when you retire'. It misses the forest for the behavioral trees.

One $3 latte a week? Ok that's that like $150 a year. Over 40 years, that's $6000 if you just put it in a savings account.

One $3 latte a day? That's $1100 per year, $44000 over 40 years, not to mention the added weight from all those extra calories.

It adds up.

$6000 over 40 years is almost literally nothing, but you're missing the point. You can optimize spending to the penny, make your own laundry detergent and power your washing machine with a hand crank to save a few dollars each month. Unless a $3 latte each day is the most excessive of your expenditures, or you don't actually enjoy it and do it to be popular or something, it's probably not worth the cognitive overhead to obsess about it. Willpower is a finite resource, and (again, for most people) there are larger gains to be made than a few dollars spent at Starbucks or a tax refund that they could shave down a bit.

Transmogrified Tiger wrote:Again, unless you're an extreme outlier, the difference in getting that money monthly v. an annual refund is negligible. Certainly so if you're less likely to use that money for responsible/interest-bearing purposes if it were just part of a larger monthly paycheck. Optimizing withholding to avoid giving the government an 'interest-free loan' has logic but is silly in practice, similar to 'if you don't buy a $3 latte and invest it you'll be a zillionaire when you retire'. It misses the forest for the behavioral trees.

It depends on the size of the refund, doesn't it? If you're getting more than a couple grand, that's around two hundred after tax dollars per month. If you have a lot of savings you might not care about that, but I bet most people would.

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"I'm not about numbers. I'm not a numbers guy at all... I've been lucky to have coaches and management who don't buy into that stuff." -Ryan Theriot

Transmogrified Tiger wrote:Again, unless you're an extreme outlier, the difference in getting that money monthly v. an annual refund is negligible. Certainly so if you're less likely to use that money for responsible/interest-bearing purposes if it were just part of a larger monthly paycheck. Optimizing withholding to avoid giving the government an 'interest-free loan' has logic but is silly in practice, similar to 'if you don't buy a $3 latte and invest it you'll be a zillionaire when you retire'. It misses the forest for the behavioral trees.

It depends on the size of the refund, doesn't it? If you're getting more than a couple grand, that's around two hundred after tax dollars per month. If you have a lot of savings you might not care about that, but I bet most people would.

Well you still get the money either way. If you'd rather have the extra money each month to go to restaurants or buy video games or whatever, I certainly don't care. My objection is to the idea that you throw away money when you don't optimize withholding so you can get a few bucks of interest/investment returns. If you're getting a 5k+ refund then sure, turn down the withholding and pump up your automatic 401k/IRA contributions or whatever. But for most people, the difference really isn't much; especially if changing withholding is a difficult process in your job, or if you're more prone to not spend the money poorly with a slightly higher paycheck. It's like 45th on the potential budget optimizations that you can do, and there's only so much time and effort people will put in to their finances.

Transmogrified Tiger wrote:Well you still get the money either way. If you'd rather have the extra money each month to go to restaurants or buy video games or whatever, I certainly don't care. My objection is to the idea that you throw away money when you don't optimize withholding so you can get a few bucks of interest/investment returns. If you're getting a 5k+ refund then sure, turn down the withholding and pump up your automatic 401k/IRA contributions or whatever. But for most people, the difference really isn't much; especially if changing withholding is a difficult process in your job, or if you're more prone to not spend the money poorly with a slightly higher paycheck. It's like 45th on the potential budget optimizations that you can do, and there's only so much time and effort people will put in to their finances.

I think your position on this is weirdly absolute. It's undeniably better to have the money available throughout the year than a few months after the years ends, and it's really not that hard to increase or decrease your withholdings.

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"I'm not about numbers. I'm not a numbers guy at all... I've been lucky to have coaches and management who don't buy into that stuff." -Ryan Theriot

Transmogrified Tiger wrote:Well you still get the money either way. If you'd rather have the extra money each month to go to restaurants or buy video games or whatever, I certainly don't care. My objection is to the idea that you throw away money when you don't optimize withholding so you can get a few bucks of interest/investment returns. If you're getting a 5k+ refund then sure, turn down the withholding and pump up your automatic 401k/IRA contributions or whatever. But for most people, the difference really isn't much; especially if changing withholding is a difficult process in your job, or if you're more prone to not spend the money poorly with a slightly higher paycheck. It's like 45th on the potential budget optimizations that you can do, and there's only so much time and effort people will put in to their finances.

I think your position on this is weirdly absolute. It's undeniably better to have the money available throughout the year than a few months after the years ends, and it's really not that hard to increase or decrease your withholdings.

Only if you understand taxes enough to not withhold way too little and possibly pay a penalty or just be surprised at the final amount. Clearly there are people who just don't get taxes enough to do so. The lost interest cost of like $5 isn't worth the stress and possible downsides.

Basically be prepared to pay quarterly estimates to make sure you're on track. If you're not even doing your year end taxes, that strategy is not for you.

Transmogrified Tiger wrote:Well you still get the money either way. If you'd rather have the extra money each month to go to restaurants or buy video games or whatever, I certainly don't care. My objection is to the idea that you throw away money when you don't optimize withholding so you can get a few bucks of interest/investment returns. If you're getting a 5k+ refund then sure, turn down the withholding and pump up your automatic 401k/IRA contributions or whatever. But for most people, the difference really isn't much; especially if changing withholding is a difficult process in your job, or if you're more prone to not spend the money poorly with a slightly higher paycheck. It's like 45th on the potential budget optimizations that you can do, and there's only so much time and effort people will put in to their finances.

I think your position on this is weirdly absolute. It's undeniably better to have the money available throughout the year than a few months after the years ends, and it's really not that hard to increase or decrease your withholdings.

My point is not 'don't optimize your withholding ever'. My point is that 'optimize your withholding or you're forfeiting interest' is a common trope, and one that has many, many circumstances where it either is not the optimal decision(depending on the individual's behaviors/tendencies) or such a small optimization that criticizing people(which is what the 'interest free loan' nonsense is) for it is silly in light of the actual impact.

Transmogrified Tiger wrote:My point is not 'don't optimize your withholding ever'. My point is that 'optimize your withholding or you're forfeiting interest' is a common trope, and one that has many, many circumstances where it either is not the optimal decision(depending on the individual's behaviors/tendencies) or such a small optimization that criticizing people(which is what the 'interest free loan' nonsense is) for it is silly in light of the actual impact.

I don't think that's an accurate rendering of the argument. The point isn't that you're missing out on actual interest income (although you theoretically could be) the point is that you're missing out on having potentially thousands of dollars available to spend. For some people that may not matter, but I imagine that a lot of people would prefer to have a couple hundred dollars extra each month.

Calling it a zero interest loan is a short-hand way of referencing the opportunity cost.

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"I'm not about numbers. I'm not a numbers guy at all... I've been lucky to have coaches and management who don't buy into that stuff." -Ryan Theriot